Yeti Holdings: A Potential Long-Term, Small-Cap Opportunity

·5 min read

The thermos, or insulated drinkware, is often said to be one of the greatest inventions ever. That is because it keeps hot liquid hot and cold liquid cold. How does it know which one?

One of the leading producers of insulated drinkware is Yeti Holdings Inc. (NYSE:YETI). Although the companys founding was based on high-end camping and hunting coolers, drinkware now accounts for 59.4% of revenue based on 2022 results. Primary products include hard and soft-sided coolers, outdoor equipment and a large variety of drinkware.

Yeti Holdings: A Potential Long-Term, Small-Cap Opportunity
Yeti Holdings: A Potential Long-Term, Small-Cap Opportunity

In 2006, the company was founded by avid outdoorsmen who were frustrated with equipment that could not keep pace with dedicated interests in hunting and fishing. A nearly indestructible hard-sided cooler with superior ice retention was the first key product for the company.

Based in Austin, Texas, it currently has a market capitalization of $3.4 billion.

Strategic growth plans

The company has outlined how it plans to continue its historic growth trajectory. The first is to expand its customer base through increasing the gifting aspect of its products beyond Christmas and birthdays. Another example is a new global partnership with the World Surf League, a previously untapped demographic.

Product innovation is also a key focus for the company. New products include YonderTM bottles and Rambler Straw Mugs in the direct-to-consumer channel and Expanded Roadie 48 and Roadie 60 wheeled hard coolers for the wholesale channel.

The company also plans to accelerate the online, or direct-to-consumer, channel, which grew 20% in the fourth quarter of 2022. This includes both company-owned websites as well as the Amazon-related (NASDAQ:AMZN) business.

International growth is the fourth key strategic focus, which grew 32% in the fourth quarter and reached 13% of total company revenue. Australia was the fastest-growing international market. Yeti also announced licensing agreements with Premier League (soccer) and Formula One racing.

Financial review

On Feb. 23, Yeti reported strong results for fiscal year 2022, but GAAP results were somewhat negatively affected by a voluntary recall of certain products. Revenue increased 13% to $1.6 billion, which compares to $1.4 billion in the prior year. Sales included a $38.4 million unfavorable impact related to the voluntary recalls, which affected certain products in the Coolers & Equipment segment.

Direct-to-consumer sales increased 17% to $918 million and wholesale channel sales grew 8% to $678 million. Drinkware sales rose 14% to $947 million, which compares to $832 million in the prior-year period due to the continued expansion of product offerings that included new colors and sizes as well as strong consumer demand for customization. Coolers & Equipment sales increased 11% to $612 million, compared to $551.9 million in the same period last year.

The total gross profit decreased 6% to $763.4 million (gross margin of 47.9%), compared to $816.1 million (gross margin of 57.8%) a year ago. The gross profit included a $97 million unfavorable impact related to the product recalls. It was also hurt by inflationary costs and supply chain issues. The adjusted gross profit, which excludes the impact related to the recalls, gained by $44.3 million to a total of $860.4 million (gross margin of 52.7%).

GAAP net income decreased 58% to $89.7 million, or 5.6% of sales, compared to $212.6 million, or 15.1% of sales, in the prior year. Earnings per share decreased 57% to $1.03 from $2.40 per diluted share last year. Further, the adjusted net income decreased 11% to $205.7 million (12.6% of adjusted sales) from $230.3 million (16.3% of adjusted sales) a year ago. Adjusted earnings pers share decreased 9% to $2.36.

The company maintains a strong balance sheet with cash balances of $234 million and total debt of $90 million. Inventories rose 16% to $371.4 million, which included a $34 million inventory write-off related to the voluntary recalls. Inventories were down $33.9 million on a sequential basis, which marked the second consecutive quarter with a sequential decline in inventory balances.


The company provided fiscal 2023 guidance during its latest earnings release, calling for revenue to increase between 3% and 5% to approximately $1.7 billion and an adjusted gross margin of roughly 55%. Earnings per share is expected to be between $2.12 and $2.23 with analyst consensus earnings estimates coming in at $2.24. They create a price-earnings ratio of approximately 17. The enterprise value/Ebitda ratio is roughly 10 based on 2023 Ebitda estimates.

The GuruFocus discounted cash flow calculator creates a value of $40 using $2.24 as the earnings starting point and a 10% long-term growth rate. However, the company may not be earning up to its full potential based on a continuing inflationary environment.

Yeti does not currently pay a dividend, but did repurchase over $100 million worth of common shares during 2022.

Guru trades

Gurus who have purchased Yeti stock recently include Jim Simons (Trades, Portfolio)' Renaissance Technologies and Joel Greenblatt (Trades, Portfolio). Investors who have reduced or sold out of their positions include Chuck Royce (Trades, Portfolio) and Caxton Associates (Trades, Portfolio).


Yeti has remarkable brand loyalty that leads to high levels of repeat business. International growth and new customer segments should accelerate growth over the long term. Inflationary issues and the voluntary recall has brought the stock down to reasonable levels, so investors may want to consider putting it on their watch list for a potential long-term investment.

This article first appeared on GuruFocus.